The bird-in-the-hand argument, which states that a dividend today is safer than the uncertain prospect of...

The bird-in-the-hand argument, which states that a dividend today is safer than the uncertain prospect of a capital gain tomorrow, is often used to justify high dividend payout ratios.

Explain the fallacy behind this argument. How might the position of an internal or external stakeholder differ on this point and why?

Expert Solution

A dividend today is safer than the uncertain prospect of a capital gain tomorrow. This statement is often used to justify high dividend payout ratios.

As we all know the future is uncertain.It is possible that the company is earning good profits at [resent but in future May be the financial position of the company is not good so there is a risk. So external stakeholders want the dividend Payout ratio high as more as they get dividend the more the amount invested is recovered in return So they want a high dividend payout ratio.

But Internal Stakeholder that is board of directors , Staff etc they think if the company is not distributed the dividend then they can invest it in other investment or earn huge profit. If they distribute the amount or profit as dividend then what they can invest So both the internal and external stakeholder differ on this point

The reason is due to that the external investor does not want to take risk and also they have a opportunity to invest the amount at higher return more than the company Return. And similiarly the internal stakeholder wants to take risk and earn more and more profit by investing the amount of dividend in the business.

jeff jeffy answered 2 years ago

1. Another name for the bird-in-hand theory of dividend is? A. Dividend irrelevance theory B. Tax...

1. Another name for the bird-in-hand theory of dividend is? A. Dividend irrelevance theory B. Tax Effect Theory C. Dividend preference theory D. Signaling hypothesis 2. According to the tax effect theory of dividend, stockholders A. prefer less dividend payouts B. prefer more dividend payouts C. are indifferent to dividend payouts D. prefer stock splits 3.Which of the following affects the ability of a firm to take full advantage of tax shield offered by debt? A.High level of debt increases...

The terms “irrelevance,” “dividend preference” (or “bird-in-the-hand”), and “tax effect” have been used to describe three...

The terms “irrelevance,” “dividend preference” (or “bird-in-the-hand”), and “tax effect” have been used to describe three major theories regarding the way dividend payouts affect a firm’s value. Explain these terms, and briefly describe each theory. What do the three theories indicate regarding the actions management should take with respect to dividend payouts? for me to give you a thumbs up I need a paragragh for each question.

According to Modigliani and Miller and the dividend irrelevance argument which of the following statements is...

According to Modigliani and Miller and the dividend irrelevance argument which of the following statements is true? a. Only firms with temporary excess cash should pay a dividend. b. Regardless of the tax treatment of dividends, investors prefer dividends since they receive cash today as opposed to postponing receiving capital gains. c. Firms pay the same total return (dividends and price appreciation combined) so without tax differences investors should be indifferent to receiving their returns as dividends of price appreciation....

Which is greater in the United States today, the income gap or the wealth gap? Why...

Which is greater in the United States today, the income gap or the wealth gap? Why is it sociologically important to make a distinction between the two?

Stock PJ, which has a beta of 1.6, paid a dividend of $0.47 today. You believe...

Stock PJ, which has a beta of 1.6, paid a dividend of $0.47 today. You believe that Stock PJ can sustainably increase its dividend by 3.2% per year. The risk-free rate is 3.3% per year and the market risk premium is 5.9%. According to these numbers and assumptions, what should the price of Stock PJ be today? Round to the nearest penny.

1) Using the multi-stage Dividend Discount Model (DDM), calculate the value, today, of a share which...

1) Using the multi-stage Dividend Discount Model (DDM), calculate the value, today, of a share which pays no dividend as yet, but expects to pay its first ever dividend of $0.50 per share in exactly 3 years from today (t=3), a dividend of $1 in year 4, and then expects the dividend to grow at 3% per annum indefinitely. The required return is 12% per annum. b) A fast growth share has the first dividend (t=1) of $1.94. Dividends are...

Explain how nations like the United States, which regularly import much more than they export from...

Explain how nations like the United States, which regularly import much more than they export from other nations, and how other nations like China and Japan, which regularly export much more than they import, keep their international accounts “in balance.” Please discuss the various levels at which accounts are tracked. Also, how would you expect the current trends, whereby the US is importing much less petroleum and actually may soon start to export large quantities of petroleum, and where China...

Question